I quote a very good article by Peter Schiff.
After the signs of the U.S. mortgage crisis is perhaps appropriate to ask some questions and more in this article are the considerations made absolutely shared as we all know that the dollar is losing consistently on the Euro.
Certainly the U.S. economy is a train at full speed and pushed the question for the future is how will exceed the long climbs that await the slopes related to the rehabilitation and stabilization of an economy that can not claim to live in an eternal period of growth.
Insights: the dollar's days as a reserve currency WORLD
Posted on Monday, April 24 @ 19:31:43 EDT by cdcnet
Economics PETER SCHIFF
In the 20th century the dollar has become the reserve currency world as the currency of the world's largest economy. In the "strange" economy of the 21st century, this causality has reversed. The main reason for which, today, the U.S. economy is the first in the world is due to the fact that the dollar is still the world's reserve currency. However, if the basic principles of the market were finally able to impose themselves this reality may, indeed must, change as soon as possible.
In the past, foreign countries were trying to accumulate dollars in order to purchase goods manufactured in the USA. Today, however, the central banks of foreign countries accumulate dollars in order to allow Americans to buy foreign goods. In the past, the profits obtained from its exports have enabled America to become the world's largest creditor country. Today, to bridge the huge trade deficit, America has become the world's largest debtor. The "status" World allows the dollar to the "rich" Americans to borrow the savings of "poor" to buy their products. If the dollar did not enjoy the privilege of this condition the Americans would be forced to consume only their products, and borrow only from their domestic savings. If the reality was that the living standards of Americans would be much lower than what they enjoy today.
The price of the dollar, which in three years has dropped by 30% after five weeks of declines is a slight rise in the last week has not deviated more than 2% of the maximum fall of 1992 records. Because of the continued deterioration of the dollar, both a technical and fundamental, a review of the continuing declines is imminent. A significant disruption of the long support given to the dollar it can cause the landslide. Without a substantial and coordinated central bank intervention, the dollar may come to lose half its value. However, even if this massive effort, never happened before, will be successful, its effects may be only temporary. By now the imminent dollar crisis can not be avoided, but only delayed, but not with the effect of exacerbating the collapse.
At the dollar was accepted as a world reserve currency mainly because the world was flooded with American goods of low cost and high quality (also helped by the fact that it could be converted into gold). In America, the phrase "import" was synonymous with "it's expensive." If something did not work the comment was: "I should have done in Japan." In fact, the Japanese have had to sweat seven shirts in order to overcome this injury, so they called their town "USA," so they could put on their products: Made in USA ". Today the opposite is true. The import goods are cheap, while internal ones are expensive. Today the Japanese have a reputation for high quality which was the first of the Americans.
The main reason for the which the Americans were so competitive comparative advantage lay in their freedom. The U.S. industry was subject to low taxes and few regulations than the rest of the world. For more Americans were among the most frugal people, with high rates of savings in investment capital flowing back. The combination of little government interference with high rates of savings have allowed it to pay the highest in the world along with cheaper products. Today, America has high taxes and heavy regulations in the rest of the world, and even more, and its citizens are among the most profligate of all.
For a time, America was able to correct the its lack of exports to its trading partners by offering the promise of even higher revenues resulting from their investments in dollars. But since America now has the lowest interest rates in the world (in reality it is negative rates) together with the most overvalued stock market and real estate, foreign investors have more incentives to invest in dollars. It is no surprise that investors are the major central banks which, after all, commit taxpayers' money. There is no doubt that central banks now afraid, as acting for political reasons and not according to their interests, be buyers of last resort and that the days of the dollar as international currency exchange are about to end.
The main reason why the dollar continues to be regarded as the world's reserve currency is due to the fact that few people understood how the structure of the American economy has changed. In fact, the American economy works in a way that would be totally impossible if it were subject to market forces alone. Since this is the world's reserve currency the U.S. economy was able to ignore the laws of the market, however, evolved in a completely unnatural. The smoke signals recently launched by various Asian central banks, in respect of their intention to diversify the composition of their reserves, show now that the dollar's international standing is at risk. Once lost the privileged position the way back to a healthy and vibrant economy will be hard and painful, and will require a substantial austerity from the government and American citizens. If America will be equal to the task ahead is to be seen, however, remains optimistic even though I remain skeptical.
Peter Schiff,
CEO and Chief Global Strategist of Euro Pacific Capital, Inc.
Source: http://www.prudentbear.com/homepage.asp
22:03:05
www.comedonchisciotte.org for translation by Vichi
link to the original: www.comedonchisciotte.net/modules.php?name=News&file=article&sid=73
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